Lower-cost rivals challenge VMware lead

Virtual Iron Inc. and XenSource Inc. are both introducing new virtualization software to undercut on price the dominant player in the field, VMware Inc.

On Monday, Virtual Iron is set to start offering Version 3.1 of its enterprise-class virtualization system for a license price of $499 per socket, which is less than 20% of the $2,875 per-socket price for a comparable VMware license, according to Virtual Iron.

Virtual Iron argues that VMware's pricing is a barrier to more widespread adoption of virtualization in data centers, citing IDC research that only 6% of data center operators deploy any type of virtualization.

In addition, XenSource on Monday introduced new and upgraded virtualization products, also at sub-$1,000 prices.

Both XenSource and Virtual Iron build their proprietary products on top of the open-source Xen platform for virtualization hypervisors. A hypervisor is technology that allows one computer to run multiple operating systems at the same time. VMware's products are not based on open source.

Virtualization refers to software and other systems management tools that are used to better utilize servers. Virtualization makes it possible for one physical server to run multiple applications simultaneously. Advanced virtualization features include tools to seamlessly move computing workloads from one physical server to another, set up infrastructure and test new software.

Revenue at VMware, a wholly owned subsidiary of storage vendor EMC Corp., grew 86% in EMC's fiscal third quarter to $188.5 million. If that pace keeps up, VMware's annualized revenue would be $750 million, VMware said.

Virtual Iron and XenSource intend to slow that pace.

"We are taking a very aggressive stand on pricing," said Mike Grandinetti, chief marketing officer for Virtual Iron.

The Charlotte Observer newspaper in North Carolina uses Virtual Iron. It took 45 minutes to run a particular job on its legacy Unix-based servers, said Geoff Shorter, the Observer's IT infrastructure manager. Virtual Iron completed the same job in 11 to 13 minutes.

The license for the high-end VMware product costs $5,750 to run on a dual-socket server, Shorter said. Virtual Iron's license is $499 per socket, so the total cost for a dual-socket machine license would be $998.

Pricing for XenSource's XenEnterprise starts at for $488 for an annual subscription license for a dual-socket server or $750 for a perpetual license. XenServer for Windows, introduced Monday, sells for $99 per dual-socket server, per year. It has fewer features than XenEnterprise.

"Our intention is to dramatically shift the landscape under VMware," said Simon Crosby, XenSource's chief technology officer.

Virtualization is following a classic economic model of an early mover dominating a market and charging a premium, soon followed by challengers competing on price, said Gordon Haff, principal IT advisor at Illuminata Inc., a technology research company.

Haff said enterprises that have deployed VMware are seeing a positive return on their investment despite the price, and he doesn't think price alone is keeping enterprises from adopting virtualization.

"Even if virtualization software were free, it wouldn't become ubiquitous because of the complexity of the implementation," he said.

Note: Due to a reporting error, this story contained incorrect information. The Charlotte Observer measured the time for its legacy Unix servers to run a job compared to how much time Virtual Iron took. It did not run VMware. The story was corrected on December 13 at 4:10 PM.

This is the corrected paragraph, also corrected in the body of the text, above:

The Charlotte Observer newspaper in North Carolina uses Virtual Iron. It took 45 minutes to run a particular job on its legacy Unix-based servers, said Geoff Shorter, the Observer's IT infrastructure manager. Virtual Iron completed the same job in 11 to 13 minutes.

Computerworld regrets the error.

Copyright © 2006 IDG Communications, Inc.

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